Taxes are a portion of the produce of the land and labour of
a country, placed at the disposal of the government; and are
always ultimately paid, either from the capital, or from the
revenue of the country.

8.2

We have already shewn how the capital of a country is either
fixed or circulating, according as it is of a more or of a less
durable nature. It is difficult to define strictly, where the
distinction between circulating and fixed capital begins; for
there are almost infinite degrees in the durability of capital.
The food of a country is consumed and reproduced at least once in
every year; the clothing of the labourer is probably not consumed
and reproduced in less than two years; whilst his house and
furniture are calculated to endure for a period of ten or twenty
years.

8.3

When the annual productions of a country more than replace
its annual consumption, it is said to increase its capital; when
its annual consumption is not at least replaced by its annual
production, it is said to diminish its capital. Capital may
therefore be increased by an increased production, or by a
diminished unproductive consumption.

8.4

If the consumption of the government, when increased by the
levy of additional taxes, be met either by an increased
production, or by a diminished consumption on the part of the
people, the taxes will fall upon revenue, and the national
capital will remain unimpaired; but if there be no increased
production or diminished unproductive consumption on the part of
the people, the taxes will necessarily fall on capital, that is
to say, they will impair the fund allotted to productive
consumption.21*

8.5

In proportion as the capital of a country is diminished, its
productions will be necessarily diminished; and, therefore, if
the same unproductive expenditure on the part of the people and
of the government continue, with a constantly diminishing annual
reproduction, the resources of the people and the state will fall
away with increasing rapidity, and distress and ruin will follow.

8.6

Notwithstanding the immense expenditure of the English
government during the last twenty years, there can be little
doubt but that the increased production on the part of the people
has more than compensated for it. The national capital has not
merely been unimpaired, it has been greatly increased, and the
annual revenue of the people, even after the payment of their
taxes, is probably greater at the present time than at any former
period of our history.

8.7

For the proof of this we might refer to the increase of
population—to the extension of agriculture—to the increase of
shipping and manufactures—to the building of docks—to the
opening of numerous canals, as well as to many other expensive
undertakings; all denoting an increase both of capital and of
annual production.

8.8

Still, however, it is certain that but for taxation this
increase of capital would have been much greater. There are no
taxes which have not a tendency to lessen the power to
accumulate. All taxes must either fall on capital or revenue. If
they encroach on capital, they must proportionably diminish that
fund by whose extent the extent of the productive industry of the
country must always be regulated; and if they fall on revenue,
they must either lessen accumulation, or force the contributors
to save the amount of the tax, by making a corresponding
diminution of their former unproductive consumption of the
necessaries and luxuries of life. Some taxes will produce these
effects in a much greater degree than others; but the great evil
of taxation is to be found, not so much in any selection of its
objects, as in the general amount of its effects taken
collectively.

8.9

Taxes are not necessarily taxes on capital, because they are
laid on capital; nor on income, because they are laid on income.
If from my income of £1,000 per annum, I am required to pay £100,
it will really be a tax on my income, should I be content with
the expenditure of the remaining £900, but it will be a tax on
capital, if I continue to spend £1,000.

8.10

The capital from which my income of £1,000 is derived, may
be of the value of £10,000; a tax of one per cent on such capital
would be £100; but my capital would be unaffected, if after
paying this tax, I in like manner contented myself with the
expenditure of £900.

8.11

The desire which every man has to keep his station in life,
and to maintain his wealth at the height which it has once
attained, occasions most taxes, whether laid on capital or on
income, to be paid from income; and therefore as taxation
proceeds, or as government increases its expenditure, the annual
enjoyments of the people must be diminished, unless they are
enabled proportionally to increase their capitals and income. It
should be the policy of governments to encourage a disposition to
do this in the people, and never to lay such taxes as will
inevitably fall on capital; since by so doing, they impair the
funds for the maintenance of labour, and thereby diminish the
future production of the country.

8.12

In England this policy has been neglected, in taxing the
probates of wills, in the legacy duty, and in all taxes affecting
the transference of property from the dead to the living. If a
legacy of £1,000 be subject to a tax of £100, the legatee
considers his legacy as only £900 and feels no particular motive
to save the £100 duty from his expenditure, and thus the capital
of the country is diminished; but if he had really received
£1,000, and had been required to pay £100 as a tax on income, on
wine, on horses, or on servants, he would probably have
diminished, or rather not increased his expenditure by that sum,
and the capital of the country would have been unimpaired.

8.13

"Taxes upon the transference of property from the dead to
the living," says Adam Smith, "fall finally, as well as
immediately, upon the persons to whom the property is
transferred. Taxes on the sale of land fall altogether upon the
seller. The seller is almost always under the necessity of
selling, and must, therefore, take such a price as he can get.
The buyer is scarce ever under the necessity of buying, and will,
therefore, only give such a price as he likes. He considers what
the land will cost him in tax and price together. The more he is
obliged to pay in the way of tax, the less he will be disposed to
give in the way of price. Such taxes, therefore, fall almost
always upon a necessitous person, and must, therefore, be very
cruel and oppressive." "Stamp duties, and duties upon the
registration of bonds and contracts for borrowed money, fall
altogether upon the borrower, and in fact are always paid by him.
Duties of the same kind upon law proceedings fall upon the
suitors. They reduce to both the capital value of the subject in
dispute. The more it costs to acquire any property, the less must
be the neat value of it when acquired. All taxes upon the
transference of property of every kind, so far as they diminish
the capital value of that property, tend to diminish the funds
destined for the maintenance of labour. They are all more or less
unthrifty taxes, that increase the revenue of the sovereign,
which seldom maintains any but unproductive labourers, at the
expense of the capital of the people, which maintains none but
productive."

8.14

But this is not the only objection to taxes on the
transference of property; they prevent the national capital from
being distributed in the way most beneficial to the community.
For the general prosperity, there cannot be too much facility
given to the conveyance and exchange of all kinds of property, as
it is by such means that capital of every species is likely to
find its way into the hands of those, who will best employ it in
increasing the productions of the country. "Why," asks M. Say,
"does an individual wish to sell his land? It is because he has
another employment in view in which his funds will be more
productive. Why does another wish to purchase this same land? It
is to employ a capital which brings him in too little, which was
unemployed, or the use of which he thinks susceptible of
improvement. This exchange will increase the general income,
since it increases the income of these parties. But if the
charges are so exorbitant as to prevent the exchange, they are an
obstacle to this increase of the general income." Those taxes,
however, are easily collected; and this by many may be thought to
afford some compensation for their injurious effects.

Notes for this chapter

It must be understood that all the productions of a country are consumed; but it makes the greatest difference imaginable whether they are consumed by those who reproduce, or by those who do not reproduce another value. When we say that revenue is saved, and added to capital, what we mean is, that the portion of revenue, so said to be added to capital, is consumed by productive instead of unproductive labourers. There can be no greater error than in suppossing that capital is increased by non-consumption. If the price of labour should rise so high, that notwithstanding the increase of capital, no more could be employed, I should say that such increase of capital would be still unproductively consumed.

End of Notes

Having in a former part of this work established, I hope
satisfactorily, the principle, that the price of corn is
regulated by the cost of its production on that land exclusively,
or rather with that capital exclusively, which pays no rent, it
will follow that whatever may increase the cost of production
will increase the price; whatever may reduce it, will lower the
price. The necessity of cultivating poorer land, or of obtaining
a less return with a given additional capital on land already in
cultivation, will inevitably raise the exchangeable value of raw
produce. The discovery of machinery, which will enable the
cultivator to obtain his corn at a less cost of production, will
necessarily lower its exchangeable value. Any tax which may be
imposed on the cultivator, whether in the shape of land-tax,
tithes, or a tax on the produce when obtained, will increase the
cost of production, and will therefore raise the price of raw
produce.

9.2

If the price of raw produce did not rise so as to compensate
the cultivator for the tax, he would naturally quit a trade where
his profits were reduced below the general level of profits; this
would occasion a diminution of supply, until the unabated demand
should have produced such a rise in the price of raw produce, as
to make the cultivation of it equally profitable with the
investment of capital in any other trade.

9.3

A rise of price is the only means by which he could pay the
tax, and continue to derive the usual and general profits from
this employment of his capital. He could not deduct the tax from
his rent, and oblige his landlord to pay it, for he pays no rent.
He would not deduct it from his profits, for there is no reason
why he should continue in an employment which yields small
profits, when all other employments are yielding greater. There
can then be no question, but that he will have the power of
raising the price of raw produce by a sum equal to the tax.

9.4

A tax on raw produce would not be paid by the landlord; it
would not be paid by the farmer; but it would be paid, in an
increased price, by the consumer.

9.5

Rent, it should be remembered, is the difference between the
produce obtained by equal portions of labour and capital employed
on land of the same or different qualities. It should be
remembered too, that the money rent of land, and the corn rent of
land, do not vary in the same proportion.

9.6

In the case of a tax on raw produce, of a land-tax, or
tithes, the corn rent of land will vary, while the money rent
will remain as before.

9.7

If, as we have before supposed, the land in cultivation were
of three qualities, and that with an equal amount of capital,

9.8

180

qrs. of corn were obtained from land No.

1.

170

. . . . . from . . . . .

2.

160

. . . . . from . . . . .

3.

the rent of No. 1 would be 20 quarters, the difference between
that of No. 3 and No. 1; and of No. 2, 10 quarters, the
difference between that of No. 3 and No. 2; while No. 3 would pay
no rent whatever.

9.9

Now if the price of corn were £4 per quarter, the money rent
of No. 1 would be £80, and that of No. 2, £40.

9.10

Suppose a tax of 8s. per quarter to be imposed on corn; then
the price would rise to £4 8s.; and if the landlords obtained the
same corn rent as before, the rent of No. 1 would be £88 and that
of No. 2, £44. But they would not obtain the same corn rent; the
tax would fall heavier on No. 1 than on No. 2, and on No. 2 than
on No. 3, because it would be levied on a greater quantity of
corn. It is the difficulty of production on No. 3 which regulates
price; and corn rises to £4 8s., that the profits of the capital
employed on No. 3 may be on a level with the general profits of
stock.

9.11

The produce and tax on the three qualities of land will be
as follows:

No. 1,

yielding

180.0

qrs. at £4 8s. per qr.

£792

Deduct the value of

16.3

or 8s. per qr. on 180 qrs.

72

Net corn produce

163.7

Net money produce

£720

No. 2,

yielding

170.0

qrs. at £4 8s. per qr....

£748

Deduct the value of

15.4

qrs. at £4 8s. or 8s. per qr. on 170 qr.

68

Net corn produce

154.6

Net money produce

£680

No. 3,

yielding

160.0

qrs. at £4 8s.

£704

Deduct the value of

14.5

qrs. at £4 8s. or 8s. per qr. on 160

64

Net corn produce

145.5

Net money produce

£640

9.13

The money rent of No. 1 would continue to be £80, or the
difference between £640 and £720; and that of No. 2, £40, or the
difference between £640 and £680, precisely the same as before;
but the corn rent will be reduced from 20 quarters on No. 1, to
18.2 quarters, the difference between 145.5 and 163.7 quarters,
and that on No. 2 from 10 to 9.12 quarters, the difference between
145.5 and 154.6 quarters.

9.14

A tax on corn, then, would fall on the consumers of corn,
and would raise its value as compared with all other commodities,
in a degree proportioned to the tax. In proportion as raw produce
entered into the composition of other commodities, would their
value also be raised, unless the tax were countervailed by other
causes. They would in fact be indirectly taxed, and their value
would rise in proportion to the tax.

9.15

A tax, however, on raw produce, and on the necessaries of
the labourer, would have another effect—it would raise wages.
From the effect of the principle of population on the increase of
mankind, wages of the lowest kind never continue much above that
rate which nature and habit demand for the support of the
labourers. This class is never able to bear any considerable
proportion of taxation; and, consequently, if they had to pay 8s.
per quarter in addition for wheat and in some smaller proportion
for other necessaries, they would not be able to subsist on the
same wages as before, and to keep up the race of labourers. Wages
would inevitably and necessarily rise; and in proportion as they
rose, profits would fall. Government would receive a tax of 8s.
per quarter on all the corn consumed in the country, a part of
which would be paid directly by the consumers of corn; the other
part would be paid indirectly by those who employed labour, and
would affect profits in the same manner as if wages had been
raised from the increased demand for labour compared with the
supply, or from an increasing difficulty of obtaining the food
and necessaries required by the labourer.

9.16

In as far as the tax might affect consumers, it would be an
equal tax, but in as far as it would affect profits, it would be
a partial tax; for it would neither operate on the landlord nor
on the stockholder, since they would continue to receive, the one
the same money rent, the other the same money dividends as
before. A tax on the produce of the land then would operate as
follows:

1st.

It would raise the price of raw produce by a sum equal to
the tax, and would therefore fall on each consumer in proportion
to his consumption.

2dly.

It would raise the wages of labour, and lower profits.

9.17

It may then be objected against such a tax,

1st.

That by raising the wages of labour, and lowering profits,
it is an unequal tax, as it affects the income of the farmer,
trader, and manufacturer, and leaves untaxed the income of the
landlord, stockholder, and others enjoying fixed incomes.

2dly.

That there would be a considerable interval between the
rise in the price of corn and the rise of wages, during which
much distress would be experienced by the labourer.

3dly.

That raising wages and lowering profits is a
discouragement to accumulation, and acts in the same way as a
natural poverty of soil.

4thly.

That by raising the price of raw produce, the prices of
all commodities into which raw produce enters, would be raised,
and that therefore we should not meet the foreign manufacturer on
equal terms in the general market.

9.18

With respect to the first objection, that by raising the
wages of labour and lowering profits it acts unequally, as it
affects the income of the farmer, trader, and manufacturer, and
leaves untaxed the income of the landlord, stockholder, and
others enjoying fixed incomes,—it may be answered, that if the
operation of the tax be unequal, it is for the legislature to
make it equal, by taxing directly the rent of land, and the
dividends from stock. By so doing, all the objects of an income
tax would be obtained, without the inconvenience of having
recourse to the obnoxious measure of prying into every man's
concerns, and arming commissioners with powers repugnant to the
habits and feelings of a free country.

9.19

With respect to the second objection, that there would be a
considerable interval between the rise of the price of corn and
the rise of wages, during which much distress would be
experienced by the lower classes,—I answer, that under
different circumstances, wages follow the price of raw produce
with very different degrees of celerity; that in some cases no
effect whatever is produced on wages by a rise of corn; in
others, the rise of wages precedes the rise in the price of corn;
again, in some the effect on wages is slow, and in others rapid.

9.20

Those who maintain that it is the price of necessaries which
regulates the price of labour, always allowing for the particular
state of progression in which the society may be, seem to have
conceded too readily, that a rise or fall in the price of
necessaries will be very slowly succeeded by a rise or fall of
wages. A high price of provisions may arise from very different
causes, and may accordingly produce very different effects. It
may arise from

1st.

A deficient supply.

2nd.

From a gradually increasing demand, which may be
ultimately attended with an increased cost of production.

3rdly.

From a fall in the value of money.

4thly.

From taxes on necessaries.

9.21

These four causes have not been sufficiently distinguished
and separated by those who have inquired into the influence of a
high price of necessaries on wages. We will examine them
severally.

9.22

A bad harvest will produce a high price of provisions, and
the high price is the only means by which the consumption is
compelled to conform to the state of the supply. If all the
purchasers of corn were rich, the price might rise to any degree,
but the result would remain unaltered; the price would at last be
so high, that the least rich would be obliged to forego the use
of a part of the quantity which they usually consumed, as by
diminished consumption alone the demand could be brought down to
the limits of the supply. Under such circumstances no policy can
be more absurd, than that of forcibly regulating money wages by
the price of food, as is frequently done, by misapplication of
the poor laws. Such a measure affords no real relief to the
labourer, because its effect is to raise still higher the price
of corn, and at last he must be obliged to limit his consumption
in proportion to the limited supply. In the natural course of
affairs a deficient supply from bad seasons, without any
pernicious and unwise interference, would not be followed by a
rise of wages. The raising of wages is merely nominal to those
who receive them; it increases the competition in the corn
market, and its ultimate effect is to raise the profits of the
growers and dealers in corn. The wages of labour are really
regulated by the proportion between the supply and demand of
necessaries, and the supply and demand of labour; and money is
merely the medium, or measure, in which wages are expressed. In
this case then the distress of the labourer is unavoidable, and
no legislation can afford a remedy, except by the importation of
additional food, or by adopting the most useful substitutes.

9.23

When a high price of corn is the effect of an increasing
demand, it is always preceded by an increase of wages, for demand
cannot increase, without an increase of means in the people to
pay for that which they desire. An accumulation of capital
naturally produces an increased competition among the employers
of labour, and a consequent rise in its price. The increased
wages are not always immediately expended on food, but are first
made to contribute to the other enjoyments of the labourer. His
improved condition however induces, and enables him to marry, and
then the demand for food for the support of his family naturally
supersedes that of those other enjoyments on which his wages were
temporarily expended. Corn rises then because the demand for it
increases, because there are those in the society who have
improved means of paying for it; and the profits of the farmer
will be raised above the general level of profits, till the
requisite quantity of capital has been employed on its
production. Whether, after this has taken place, corn shall again
fall to its former price, or shall continue permanently higher,
will depend on the quality of the land from which the increased
quantity of corn has been supplied. If it be obtained from land
of the same fertility, as that which was last in cultivation, and
with no greater cost of labour, the price will fall to its former
state; if from poorer land, it will continue permanently higher.
The high wages in the first instance proceeded from an increase
in the demand for labour: inasmuch as it encouraged marriage,
and supported children, it produced the effect of increasing the
supply of labour. But when the supply is obtained, wages will
again fall to their former price, if corn has fallen to its
former price: to a higher than the former price, if the increased
supply of corn has been produced from land of an inferior
quality. A high price is by no means incompatible with an
abundant supply: the price is permanently high, not because the
quantity is deficient, but because there has been an increased
cost in producing it. It generally happens indeed, that when a
stimulus has been given to population, an effect is produced
beyond what the case requires; the population may be, and
generally is so much increased as, notwithstanding the increased
demand for labour, to bear a greater proportion to the funds for
maintaining labourers than before the increase of capital. In
this case a re-action will take place, wages will be below their
natural level, and will continue so, till the usual proportion
between the supply and demand has been restored. In this case
then, the rise in the price of corn is preceded by a rise of
wages, and therefore entails no distress on the labourer.

9.24

A fall in the value of money, in consequence of an influx of
the precious metals from the mines, or from the abuse of the
privileges of banking, is another cause for the rise of the price
of food; but it will make no alteration in the quantity produced.
It leaves undisturbed too the number of labourers, as well as the
demand for them; for there will be neither an increase nor a
diminution of capital. The quantity of necessaries to be allotted
to the labourer, depends on the comparative demand and supply of
necessaries, with the comparative demand and supply of labour;
money being only the medium in which the quantity is expressed;
and as neither of these is altered, the real reward of the
labourer will not alter. Money wages will rise, but they will
only enable him to furnish himself with the same quantity of
necessaries as before. Those who dispute this principle, are
bound to show why an increase of money should not have the same
effect in raising the price of labour, the quantity of which has
not been increased, as they acknowledge it would have on the
price of shoes, of hats, and of corn, if the quantity of those
commodities were not increased. The relative market value of hats
and shoes is regulated by the demand and supply of hats, compared
with the demand and supply of shoes, and money is but the medium
in which their value is expressed. If shoes be doubled in price,
hats will also be doubled in price, and they will retain the same
comparative value. So if corn and all the necessaries of the
labourer be doubled in price, labour will be doubled in price
also, and while there is no interruption to the usual demand and
supply of necessaries and of labour, there can be no reason why
they should not preserve their relative value.

9.25

Neither a fall in the value of money, nor a tax on raw
produce, though each will raise the price, will necessarily
interfere with the quantity of raw produce; or with the number of
people, who are both able to purchase, and willing to consume it.
It is very easy to perceive why, when the capital of a country
increases irregularly, wages should rise, whilst the price of
corn remains stationary, or rises in a less proportion; and why,
when the capital of a country diminishes, wages should fall
whilst corn remains stationary, or falls in a much less
proportion, and this too for a considerable time; the reason is,
because labour is a commodity which cannot be increased and
diminished at pleasure. If there are too few hats in the market
for the demand, the price will rise, but only for a short time;
for in the course of one year, by employing more capital in that
trade, any reasonable addition may be made to the quantity of
hats, and therefore their market price cannot long very much
exceed their natural price; but it is not so with men; you cannot
increase their number in one or two years when there is an
increase of capital, nor can you rapidly diminish their number
when capital is in a retrograde state; and, therefore, the number
of hands increasing or diminishing slowly, whilst the funds for
the maintenance of labour increase or diminish rapidly, there
must be a considerable interval before the price of labour is
exactly regulated by the price of corn and necessaries; but in
the case of a fall in the value of money, or of a tax on corn,
there is not necessarily any excess in the supply of labour, nor
any abatement of demand, and therefore there can be no reason why
the labourer should sustain a real diminution of wages.

9.26

A tax on corn does not necessarily diminish the quantity of
corn, it only raises its money price; it does not necessarily
diminish the demand compared with the supply of labour; why then
should it diminish the portion paid to the labourer? Suppose it
true that it did diminish the quantity given to the labourer, in
other words, that it did not raise his money wages in the same
proportion as the tax raised the price of the corn which he
consumed; would not the supply of corn exceed the demand?—would
it not fall in price? and would not the labourer thus obtain his
usual portion? In such case, indeed, capital would be withdrawn
from agriculture; for if the price were not increased by the
whole amount of the tax, agricultural profits would be lower than
the general level of profits, and capital would seek a more
advantageous employment. In regard then to a tax on raw produce,
which is the point under discussion, it appears to me that no
interval which could bear oppressively on the labourer, would
elapse between the rise in the price of raw produce, and the rise
in the wages of the labourer; and that therefore no other
inconvenience would be suffered by this class, than that which
they would suffer from any other mode of taxation, namely, the
risk that the tax might infringe on the funds destined for the
maintenance of labour, and might therefore check or abate the
demand for it.

9.27

With respect to the third objection against taxes on raw
produce, namely, that the raising wages, and lowering profits, is
a discouragement to accumulation, and acts in the same way as a
natural poverty of soil; I have endeavoured to shew in another
part of this work that savings may be as effectually made from
expenditure as from production; from a reduction in the value of
commodities, as from a rise in the rate of profits. By increasing
my profits from £1,000 to £1,200, whilst prices continue the
same, my power of increasing my capital by savings is increased,
but it is not increased so much as it would be if my profits
continued as before, whilst commodities were so lowered in price,
that £800 would procure me as much as £1,000 purchased before.

9.28

Now the sum required by the tax must be raised, and the
question simply is, whether the same amount shall be taken from
individuals by diminishing their profits, or by raising the
prices of the commodities on which their profits will be
expended.

9.29

Taxation under every form presents but a choice of
evils; if it do not act on profit, or other sources of income, it
must act on expenditure; and provided the burthen be equally
borne, and do not repress reproduction, it is indifferent on
which it is laid. Taxes on production, or on the profits of
stock, whether applied immediately to profits, or indirectly, by
taxing the land or its produce, have this advantage over other
taxes; that provided all other income be taxed, no class of the
community can escape them, and each contributes according to his
means.

9.30

From taxes on expenditure a miser may escape; he may have an
income of £10,000 per annum, and expend only £300; but from taxes
on profits, whether direct or indirect, he cannot escape; he will
contribute to them either by giving up a part or the value of a
part of his produce; or by the advanced prices of the necessaries
essential to production, he will be unable to continue to
accumulate at the same rate. He may, indeed, have an income of
the same value, but he will not have the same command of labour,
nor of an equal quantity of materials on which such labour can be
exercised.

9.31

If a country is insulated from all others, having no
commerce with any of its neighbours, it can in no way shift any
portion of its taxes from itself. A portion of the produce of its
land and labour will be devoted to the service of the State; and
I cannot but think that, unless it presses unequally on that
class which accumulates and saves, it will be of little
importance whether the taxes be levied on profits, on
agricultural, or on manufactured commodities. If my revenue be
£1,000 per annum, and I must pay taxes to the amount of £100, it
is of little importance whether I pay it from my revenue, leaving
myself only £900, or pay £100 in addition for my agricultural
commodities, or for my manufactured goods. If £100 is my fair
proportion of the expenses of the country, the virtue of taxation
consists in making sure that I shall pay that £100, neither more
nor less; and that cannot be effected in any manner so securely
as by taxes on wages, profits, or raw produce.

9.32

The fourth and last objection which remains to be noticed
is: That by raising the price of raw produce, the prices of all
commodities into which raw produce enters, will be raised, and
that, therefore, we shall not meet the foreign manufacturer on
equal terms in the general market.

9.33

In the first place, corn and all home commodities could not
be materially raised in price without an influx of the precious
metals; for the same quantity of money could not circulate the
same quantity of commodities, at high as at low prices, and the
precious metals never could be purchased with dear commodities.
When more gold is required, it must be obtained by giving more,
and not fewer commodities in exchange for it. Neither could the
want of money be supplied by paper, for it is not paper that
regulates the value of gold as a commodity, but gold that
regulates the value of paper. Unless then the value of gold could
be lowered, no paper could be added to the circulation without
being depreciated. And that the value of gold could not be
lowered, appears clear, when we consider that the value of gold
as a commodity must be regulated by the quantity of goods which
must be given to foreigners in exchange for it. When gold is
cheap, commodities are dear; and when gold is dear, commodities
are cheap, and fall in price. Now as no cause is shewn why
foreigners should sell their gold cheaper than usual, it does not
appear probable that there would be any influx of gold. Without
such an influx there can be no increase of quantity, no fall in
its value, no rise in the general price of goods.22*

9.34

The probable effect of a tax on raw produce, would be to
raise the price of raw produce, and of all commodities in which
raw produce entered, but not in any degree proportioned to the
tax; while other commodities in which no raw produce entered,
such as articles made of the metals and the earths, would fall in
price: so that the same quantity of money as before would be
adequate to the whole circulation.

9.35

A tax which should have the effect of raising the price of
all home productions, would not discourage exportation, except
during a very limited time. If they were raised in price at home,
they could not indeed immediately be profitably exported, because
they would be subject to a burthen here from which abroad they
were free. The tax would produce the same effect as an alteration
in the value of money, which was not general and common to all
countries, but confined to a single one. If England were that
country, she might not be able to sell, but she would be able to
buy, because importable commodities would not be raised in price.
Under these circumstances nothing but money could be exported in
return for foreign commodities, but this is a trade which could
not long continue; a nation cannot be exhausted of its money, for
after a certain quantity has left it, the value of the remainder
will rise, and such a price of commodities will be the
consequence, that they will again be capable of being profitably
exported. When money had risen, therefore, we should no longer
export it in return for goods, but we should export those
manufactures which had first been raised in price, by the rise in
the price of the raw produce from which they were made, and then
again lowered by the exportation of money.

9.36

But it may be objected that when money so rose in value, it
would rise with respect to foreign as well as home commodities,
and therefore that all encouragement to import foreign goods
would cease. Thus, suppose we imported goods which cost £100
abroad, and which sold for £120 here, we should cease to import
them, when the value of money had so risen in England, that they
would only sell for £100 here: this, however, could never happen.
The motive which determines us to import a commodity, is the
discovery of its relative cheapness abroad: it is the comparison
of its price abroad with its price at home. If a country exports
hats, and imports cloth, it does so because it can obtain more
cloth by making hats, and exchanging them for cloth, than if it
made the cloth itself. If the rise of raw produce occasions any
increased cost of production in making hats, it would occasion
also an increased cost in making cloth. If, therefore, both
commodities were made at home, they would both rise. One,
however, being a commodity which we import, would not rise,
neither would it fall, when the value of money rose; for by not
falling, it would regain its natural relation to the exported
commodity. The rise of raw produce makes a hat rise from 30 to 33
shillings, or 10 per cent: the same cause if we manufactured
cloth, would make it rise from 20s. to 22s. per yard. This rise
does not destroy the relation between cloth and hats; a hat was,
and continues to be, worth one yard and a half of cloth. But if
we import cloth, its price will continue uniformly at 20s. per
yard, unaffected first by the fall, and then by the rise in the
value of, money. whilst hats, which had risen from 30s. to 33s.,
will again fall from 33s. to 30s., at which point the relation
between cloth and hats will be restored.

9.37

To simplify the consideration of this subject, I have been
supposing that a rise in the value of raw materials would affect,
in an equal proportion, all home commodities; that if the effect
on one were to raise it 10 per cent, it would raise all 10 per
cent; but as the value of commodities is very differently made up
of raw material and labour; as some commodities, for instance,
all those made from the metals, would be unaffected by the rise
of raw produce from the surface of the earth, it is evident that
there would be the greatest variety in the effects produced on
the value of commodities, by a tax on raw produce. As far as this
effect was produced, it would stimulate or retard the exportation
of particular commodities, and would undoubtedly be attended with
the same inconvenience that attends the taxing of commodities; it
would destroy the natural relation between the value of each.
Thus the natural price of a hat, instead of being the same as a
yard and a half of cloth, might only be of the value of a yard
and a quarter, or it might be of the value of a yard and three
quarters, and therefore rather a different direction might be
given to foreign trade. All these inconveniences would probably
not interfere with the value of the exports and imports; they
would only prevent the very best distribution of the capital of
the whole world, which is never so well regulated, as when every
commodity is freely allowed to settle at its natural price,
unfettered by artificial restraints.

9.38

Although then the rise in the price of most of our own
commodities, would for a time check exportation generally, and
might permanently prevent the exportation of a few commodities,
it could not materially interfere with foreign trade, and would
not place us under any comparative disadvantage as far as
regarded competition in foreign markets.

End of Notes

A tax on rent would affect rent only; it would fall wholly
on landlords, and could not be shifted to any class of consumers.
The landlord could not raise his rent, because he would leave
unaltered the difference between the produce obtained from the
least productive land in cultivation, and that obtained from land
of every quality. Three sorts of land, No. 1, 2, and 3, are in
cultivation, and yield respectively with the same labour, 180,
170, and 160 quarters of wheat; but No. 3 pays no rent, and is
therefore untaxed: the rent then of No. 2 cannot be made to
exceed the value of ten, nor No. 1, of twenty quarters. Such a
tax could not raise the price of raw produce, because as the
cultivator of No. 3 pays neither rent nor tax, he would in no way
be enabled to raise the price of the commodity produced. A tax on
rent would not discourage the cultivation of fresh land, for such
land pays no rent, and would be untaxed. If No. 4 were taken into
cultivation, and yielded 150 quarters, no tax would be paid for
such land; but it would create a rent of ten quarters on No. 3,
which would then commence paying the tax.

10.2

A tax on rent, as rent is constituted, would discourage
cultivation, because it would be a tax on the profits of the
landlord. The term rent of land, as I have elsewhere observed, is
applied to the whole amount of the value paid by the farmer to
his landlord, a part only of which is strictly rent. The
buildings and fixtures, and other expenses paid for by the
landlord, form strictly a part of the stock of the farm, and must
have been furnished by the tenant, if not provided by the
landlord. Rent is the sum paid to the landlord for the use of the
land, and for the use of the land only. The further sum that is
paid to him under the name of rent, is for the use of the
buildings, &c., and is really the profits of the landlord's
stock. In taxing rent, as no distinction would be made between
that part paid for the use of the land, and that paid for the use
of the landlord's stock, a portion of the tax would fall on the
landlord's profits, and would, therefore, discourage cultivation,
unless the price of raw produce rose. On that land, for the use
of which no rent was paid, a compensation under that name might
be given to the landlord for the use of his buildings. These
buildings would not be erected, nor would raw produce be grown on
such land, till the price at which it sold would not only pay for
all the usual outgoings, but also this additional one of the tax.
This part of the tax does not fall on the landlord, nor on the
farmer, but on the consumer of raw produce.

10.3

There can be little doubt but that if a tax were laid on
rent, landlords would soon find a way to discriminate between
that which is paid to them for the use of the land, and that
which is paid for the use of the buildings, and the improvements
which are made by the landlord's stock. The latter would either
be called the rent of house and buildings, or on all new land
taken into cultivation, such buildings would be erected, and
improvements would be made by the tenant, and not by the
landlord. The landlord's capital might indeed be really employed
for that purpose; it might be nominally expended by the tenant,
the landlord furnishing him with the means, either in the shape
of a loan, or in the purchase of an annuity for the duration of
the lease. Whether distinguished or not, there is a real
difference between the nature of the compensations which the
landlord receives for these different objects; and it is quite
certain, that a tax on the real rent of land falls wholly on the
landlord, but that a tax on that remuneration which the landlord
receives for the use of his stock expended on the farm, falls, in
a progressive country, on the consumer of raw produce. If a tax
were laid on rent, and no means of separating the remuneration
now paid by the tenant to the landlord under the name of rent
were adopted, the tax, as far as it regarded the rent on the
buildings and other fixtures, would never fall for any length of
time on the landlord, but on the consumer. The capital expended
on these buildings, &c., must afford the usual profit of stock;
but it would cease to afford this profit on the land last
cultivated, if the expenses of those buildings, &c., did not fall
on the tenant; and if they did, the tenant would then cease to
make his usual profits of stock, unless he could charge them on
the consumer.

Tithes are a tax on the gross produce of the land, and, like
taxes on raw produce, fall wholly on the consumer. They differ
from a tax on rent, inasmuch as they affect land which such a tax
would not reach; and raise the price of raw produce, which that
tax would not alter. Lands of the worst quality, as well as of
the best, pay tithes, and exactly in proportion to the quantity
of produce obtained from them; tithes are therefore an equal tax.

11.2

If land of the last quality, or that which pays no rent, and
which regulates the price of corn, yield a sufficient quantity to
give the farmer the usual profits of stock, when the price of
wheat is £4 per quarter, the price must rise to £4 8s. before the
same profits can be obtained after the tithes are imposed,
because for every quarter of wheat the cultivator must pay eight
shillings to the church, and if he does not obtain the same
profits, there is no reason why he should not quit his
employment, when he can get them in other trades.

11.3

The only difference between tithes and taxes on raw produce,
is, that one is a variable money tax, the other a fixed money
tax. In a stationary state of society, where there is neither
increased nor diminished facility of producing corn, they will be
precisely the same in their effects; for, in such a state, corn
will be at an invariable price, and the tax will therefore be
also invariable. In either a retrograde state, or in a state in
which great improvements are made in agriculture, and where
consequently raw produce will fall in value comparatively with
other things, tithes will be a lighter tax than a permanent money
tax; for if the price of corn should fall from £4 to £3, the tax
would fall from eight to six shillings. In a progressive state of
society yet without any marked improvements in agriculture, the
price of corn would rise, and tithes would be a heavier tax than
a permanent money tax. If corn rose from £4 to £5, the tithes on
the same land would advance from eight to ten shillings.

11.4

Neither tithes nor a money tax will affect the money rent of
landlords, but both will materially affect corn rents. We have
already observed how a money tax operates on corn rents, and it
is equally evident that a similar effect would be produced by
tithes. If the lands, No. 1, 2, 3, respectively produced 180,
170, and 160 quarters, the rents might be on No. 1, twenty
quarters, and on No. 2, ten quarters; but they would no longer
preserve that proportion after the payment of tithes: for if a
tenth be taken from each, the remaining produce will be 162, 153,
154, and consequently the corn rent of No. 1 will be reduced to
eighteen, and that of No. 2 to nine quarters. But the price of
corn would rise from £4 to £4 8s.10 2/3d.; for 144 quarters are
to £4 as 160 quarters to £4 8s.10 2/3d., and consequently the
money rent would continue unaltered; for on No. 1 it would be
£80.,23* and on No. 2, £40.24*

11.5

The chief objection against tithes is, that they are not a
permanent and fixed tax, but increase in value, in proportion as
the difficulty of producing corn increases. If those difficulties
should make the price of corn £4, the tax is 8s., if they should
increase it to £5, the tax is 10s., and at £6, it is 12s. They
not only rise in value, but they increase in amount: thus, when
No. 1 was cultivated, the tax was only levied on 180 quarters;
when No. 2 was cultivated, it was levied on 180 + 170, or 350
quarters; and when No. 3 was cultivated, on 180 + 170 + 160 = 510
quarters. Not only is the amount of tax increased from 100,000
quarters, to 200,000 quarters, when the produce is increased from
one to two millions of quarters; but, owing to the increased
labour necessary to produce the second million, the relative
value of raw produce is so advanced, that the 200,000 quarters
may be, though only twice in quantity, yet in value three times
that of the 100,000 quarters which were paid before.

11.6

If an equal value were raised for the church by any other
means, increasing in the same manner as tithes increase,
proportionably with the difficulty of cultivation, the effect
would be the same, and therefore it is a mistake to suppose that,
because they are raised on the land, they discourage cultivation
more than an equal amount would do if raised in any other manner.
The church would in both cases be constantly obtaining an
increased portion of the net produce of the land and labour of
the country. In an improving state of society, the net produce of
land is always diminishing in proportion to its gross produce;
but it is from the net income of a country that all taxes are
ultimately paid, either in a progressive or in a stationary
country. A tax increasing with the gross income, and falling on
the net income, must necessarily be a very burdensome, and a very
intolerable tax. Tithes are a tenth of the gross, and not of the
net produce of the land, and therefore as society improves in
wealth, they must, though the same proportion of the gross
produce, become a larger and larger proportion of the net
produce.

11.7

Tithes, however, may be considered as injurious to
landlords, inasmuch as they act as a bounty on importation, by
taxing the growth of home corn, while the importation of foreign
corn remains unfettered. And if, in order to relieve the
landlords from the effects of the diminished demand for land,
which such a bounty must encourage, imported corn were also
taxed, in an equal degree with corn grown at home, and the
produce paid to the State, no measure could be more fair and
equitable; since whatever were paid to the State by this tax,
would go to diminish the other taxes which the expenses of
Government make necessary: but if such a tax were devoted only to
increase the fund paid to the church, it might indeed on the
whole increase the general mass of production, but it would
diminish the portion of that mass allotted to the productive
classes.

11.8

If the trade of cloth were left perfectly free, our
manufacturers might be able to sell cloth cheaper than we could
import it. If a tax were laid on the home manufacturer, and not
on the importer of cloth, capital might be injuriously driven
from the manufacture of cloth to the manufacture of some other
commodity, as cloth might then be imported cheaper than it could
be made at home. If imported cloth should also be taxed, cloth
would again be manufactured at home. The consumer first bought
cloth at home, because it was cheaper than foreign cloth; he then
bought foreign cloth, because it was cheaper untaxed than home
cloth taxed: he lastly bought it again at home, because it was
cheaper when both home and foreign cloth were taxed. It is in the
last case that he pays the greatest price for his cloth, but all
his additional payment is gained by the state. In the second
case, he pays more than in the first, but all he pays in addition
is not received by the State, it is an increased price caused by
difficulty of production, which is incurred, because the easiest
means of production are taken away from us, by being fettered
with a tax.

Notes for this chapter

End of Notes

The cuneiform inscription in the Liberty Fund logo is the earliest-known written appearance of the word "freedom" (amagi), or "liberty." It is taken from a clay document written about 2300 B.C. in the Sumerian city-state of Lagash.